The Sovereign Rating Service

1
The Sovereign Rating Service
2
Fitch Sovereign Service

• Credentials
• Fitch Sovereign Rating Service

3
Fitch Ratings

• Formed through the merger of Fitch IBCA with Duff
  and Phelps (DCR) (6/00) and Thomson BankWatch
  (12/00)
• One of three global rating agencies
• The only European-owned rating agency
• Controlled by FIMALAC, S.A.
• Dual headquarters in New York and London
• Over 1,100 employees world-wide in over 40
  offices
• Fully recognised by leading regulatory authorities

sepa01
4
Fitch Offices, Subsidiaries and Affiliates
Paris
Barcelona
London
Frankfurt
Toronto
Warsaw
New York
Powell
Chicago
Beijing
San Francisco
Seoul
Dallas
Milan
Tokyo
Tampa
Istanbul
Monterey
Panama
Mexico City
El Salvador

Heredia
Bogota
Hong Kong
Caracas
Singapore
Lima
Brisbane
Sao Paulo
Sri Lanka
Santiago
Sydney
Mumbai
Buenos Aires
Cairo
Tunis
Bangkok
Lahore
Johannesburg
5
Global Market Coverage

• 1,600 Banks and Financial Institutions
• 1,000 Corporates
• 700 Insurance Companies
• Structured Finance
• 78 Sovereign Nations
• 1,400 U.S. Municipalities and European
  Sub-nationals

6
Fitch Value Added For Issuers

• Quality research report beneficial in educating
  investors
• Consultative approach
• Accessibility of analysts
• Broaden investor base

7
The Fitch Sovereign Service

• 78 published sovereign ratings worldwide
• More than 95 of international debt rated by
  Fitch
• 18 sovereign analysts in London, New York and
  Hong Kong
• Consultative and co-operative rating approach
• In-depth research reports support ratings
• More than 400 investors and market participants
  receive Fitch sovereign research
• Regular contact with investors and events

8
Selected Sovereign Subscribers
9
Fitch Sovereign Rating Actions

• Colombia was 20 bps wider on the change in
  Fitchs rating outlook to negative JPM Chase
• Mexican stocks rallied on the news Fitch
  upgrade. In the first hour of trading, the IPC
  index rose 3.2 per cent to 6,588.01.Financial
  Times
• The upgrade helped lift South Korea's KOSPI as
  much as 2.9 percent to a high of 721.97 Reuters
• In Malaysia, Bonds traded 5 bps across the board
  following positive rating action by Fitch HSBC

10
The Rating Process

• Rating review and due diligence meetings (week 1)
• 2-3 analysts visit country
• Draft report prepared (weeks 2 -5)
• Issuer has opportunity to comment on draft report
• Rating committee
• Prior notification of result of rating committee
• Report and press release issued (week 6)

11
Our Approach 1

• Assessment of public and external finances
• fiscal flexibility
• debt dynamics
• focus on net external debt
• structure of public and external debt
• vulnerability to external shocks
• Macroeconomic policy framework
• predictability and transparency
• ability to respond to shocks

12
Our Approach 2

• Economic fundamentals
• trend economic growth
• human capital
• financial sector
• capacity to absorb shocks
• Political and social situation
• strength of civil and political institutions
• Political and social stability
• International relations

13
Implications of Basel II

• Proposed new BIS capital adequacy regime has
  important implications for sovereign risk
  weighting
• The Fitch rating..boosts the treasurys position
  as a borrower, with two ratings in the AA
  category as opposed to one A rating. As a result,
  Iceland has a risk weighting of 0, instead of
  20 risk category applicable under the draft BIS
  rules, Central Bank of Iceland, Monetary
  Bulletin 2001/3

14
Sovereign Rating Fees

• US50,000 Annual Surveillance Fee (appx)
• plus direct expenses of analyst visit
• issue-related fees
• -or-
• US125,000 Annual Maintenance Fee (appx)
• plus direct expenses of analyst visit
• no issue-related fees

15
www.fitchratings.com